The impact of the $23.5-billion (Dh86.24 billion) Dubai World and Nakheel debt restructuring plan will be manageable for UAE banks, analysts say.

The Dubai Government on Thursday announced a comprehensive set of proposals for Dubai World creditors represented by 97 banks and financial institutions for the repayment of the debts, including a 100 per cent repayment in five to eight years. The government has also agreed to inject $9.5 billion into both entities in exchange for equities that will help them recover from the current financial stress.

“The likely negative impact on the UAE banking system should be manageable without additional support. While all of the details of the restructuring have yet to be clarified, the proposed 100 per cent principal repayment, albeit with extended maturities, and continuing commercial rates of interest, appear to be a more favourable solution than the banks may have feared in the last few months,” credit rating agency Fitch said in an email statement.
Difficult time

Shaikh Ahmad Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee, said, “Our financial support demonstrates our commitment to finding a fair and equitable solution for all stakeholders in the wider interest of the economy. The Government understands that this restructuring process has been a difficult time for all parties.”

The International Monetary Fund (IMF) has praised the Dubai Government for offering “a fair and equitable solution for all stakeholders” in its debt restructuring plan.

“Today’s announcement by the Chairman of the Dubai Supreme Fiscal Committee for the restructuring of liabilities of Dubai World and Nakheel is a welcome step further in the debt restructuring process. We support the authorities intention to find a fair and equitable solution for all stakeholders,” the IMF said in a statement issued on Thursday evening, a copy of which was obtained by Gulf News.

“A satisfactory conclusion of this process will pave the way for improving overall credit conditions, the investment climate, and economic activity in Dubai and the UAE in general.

“We encourage all parties to build on the momentum and work together in satisfactorily concluding Dubai World’s debt restructuring.”

The Dubai Government said it will support these proposals with significant financial resources, including a commitment to fund up to $9.5 billion in new funding over the business plan period. This will be funded by $5.7 billion remaining from the loan previously made available by Abu Dhabi and from internal Dubai Government resources.

Clarity

The announcement was immediately greeted by investors as the Dubai benchmark index jumped 4.3 per cent — the biggest in recent weeks. Analysts expressed their optimism as well. “The government’s press release has clearly improved market sentiment by providing more clarity and has put some proper meat on the bones of the restructuring plan,” said Baldwin Berges, Managing Director of UK-based Silk Invest Limited.